Although peer-to-peer lending has been around since the earliest recorded civilizations, it was not until recently that it became a recognized phenomenon. The birth of the Internet changed the face of peer-to-peer lending, giving an old concept a new name and a new focus. Throughout history, peer-to-peer lending has been responsible for building cities, keeping farmers solvent, and allowing for the expansion of cultures that are still in existence today.
Social networking has had a significant impact on peer-to-peer lending. Previously, when someone needed funds, the sources for funds were usually limited to close friends or family, or possibly the local bank. The main problem with this model was that, sooner or later, friends and family won’t have money to loan, and a bank may want to charge too much interest. Today, thanks to peer-to-peer lending, when someone needs a loan, they have access to individuals willing to commit funds from all over the world at their fingertips.
Kiva was one of the first non-profit peer-to-peer lending sites to come onto the scene, allowing people from all over the world to connect with investors. Prosper joined the peer-to-peer ranks in the US, and quickly took off from there. Their model was so successful, in fact, that they recently announced a new expansion into Japan. The UK-based company Zopa is also growing, and will now be available to residents in Italy.
In ancient times, most sought peer-to-peer loans because there was a lack of organized lending institutions, and because it was just easier. Today, consumers are interested in peer-to-peer lending because they have far more options than they normally would with a traditional banking relationship.
Instead of being forced to accept standard terms and often high interest rates, peer-to-peer lending allows consumers to set the maximum interest rate they are willing to pay, and in some cases, their own terms. Studies have shown that interest rates for peer-to-peer lending can be much lower than those charged by banks, with terms that both borrowers and lenders frequently prefer.
Peer-to-peer lending in the 21st Century has become more efficient with the ability to instantly check credit criteria and with access to a much larger borrowing and lending community. Peer-to-peer lenders are able to spread out their risk and borrowers have new ways to get the funding they need.
As payday loans become more expensive and consumers struggle to make ends meet in the current economy, peer-to-peer lending stands as a favorable solution. The current economic outlook has also forced many banks to rethink their lending practices of the past few years, and standard loans are currently much harder to procure. However, through peer-to-peer lending, prospective borrowers now have a viable alternative to get the money they need.
Throughout history, each society and culture has played a role in shaping peer-to-peer lending. From ancient Mesopotamian farmers to today’s social network users, the demand for new loans has remained steady. Thanks to these new online options, consumers now have access to peer-to-peer lending in far greater numbers, and it is likely that p2p lending will continue to thrive well in the future.